Cautious sentiment sets in as dollar firms and rand edges weaker on tariff fears

A cautious tone is taking hold in global markets as investors digest renewed US trade threats, with the dollar gaining ground and the rand edging weaker. The shift follows US President Donald Trump’s announcement of steep new tariffs, which has added to uncertainty and pushed some investors toward safer assets.

“After President Trump announced a new round of tariffs [Monday] evening, we have seen risk-sentiment starting to wane as the market is trying to take stock of what this could mean,” said Wichard Cilliers, Director and Head of Market Risk at TreasuryONE, on Tuesday evening. He noted that this change in sentiment had already affected emerging market currencies, with the rand “presently flirting with the R17.90 level… ending the South African session on R17.86”.

As of 1pm, the local currency was trading at R17.82 to the dollar.

Bianca Botes, Director at Citadel Global, noted that the dollar had strengthened in response to the developments. “The dollar remained firm, near a two-and-a-half-week high, following yesterday’s rally, as global markets absorbed a fresh wave of US trade threats,” she said. This includes Trump’s announcement of a 50% tariff on copper, which sent US copper futures more than 10% higher to a record level.

Botes added that while the copper market reacted sharply, other areas showed a more muted response. “Trump also warned of upcoming tariffs on semiconductors and pharmaceuticals, potentially as high as 200%, though implementation may be delayed by up to a year.”

The pressure on South Africa is mounting. Trump has indicated that BRICS-aligned nations, including South Africa, could face a 30% tariff on general exports from August 1 unless trade agreements are finalised. The local currency has already started to reflect these risks.

“The rand has not rallied as much as it had with the previous trade tariff shock, but it is decidedly on the back foot after enjoying a recent bout of strength against the US dollar,” said Wichard Cilliers.

President Cyril Ramaphosa has pushed back against the proposed tariffs, arguing that they are based on a misrepresentation of trade data. However, negotiations are now urgent, particularly as the citrus industry faces significant exposure. “South Africa risks losing some 35,000 citrus-sector jobs, and rural communities brace for impact,” said Andre Cilliers, Currency Strategist at TreasuryONE.

Gold, often seen as a safe-haven asset during uncertain times, has also been reflecting market unease. “Gold is trading below $3,300, reflecting market uncertainty as investors await significant developments,” said Wichard Cilliers. The stronger dollar, supported by Trump’s tariff threats and firm stance on trade deadlines, is weighing on gold’s appeal. The metal steadied at $3 301 an ounce on Wednesday morning.